With the build-up in recent years of sales desks, and the arrival of electronic trading, many thought the demise of spot trading was imminent. Colin Lambert finds a different sentiment emerging, with many recruiters saying good execution traders are still in demand. Furthermore, these recruiters say the jobs market is healthy generally, as many banks are rehiring on desks previously cut back.
The celebrated mathematician John von Neumann said, in 1949, “It would appear that we have reached the limits of what is possible to achieve with computer technology, although one should be careful with such statements, as they tend to sound pretty silly in five years.”
His sentiments have been echoed in the FX markets over the past year or two, as technology has advanced to the stage where banks are now talking about such straight-through processing (STP) innovations as end-to-end integration and computer-to-computer trading.
These advances beg the question: Where do we go from here? In FX terms, many see little room for advancing beyond further improvements in connection speeds, or a possible move to an exchange model. But as acknowledged, it is very difficult to predict technological developments very far into the future.
In the current environment of technological advancement, another question can be asked: Where does this leave the role of sales and trading staff in today’s markets? Recent prevailing sentiment has tended to be downbeat – that further job losses were inevitable. But drill down into the issue further, and evidence appears that suggests the market may well pick up this year.
“There are likely to be acute job shortages in the next 18 months,” believes Tony Marshall, director at London-based recruitment agency Marshall Warburton. “Banks have undoubtedly cut back too far, mainly because there is a uniformity of business models across much of the industry.”
The increased transparency and visibility of pricing has created a squeeze on dealing profits that were already under pressure, Marshall says. This has seen a sea-change in the way banks are approaching the process of recruitment. “There is a lot more focus on multi-skilled candidates, to the extent that they now hold the upper hand in the recruitment process,” adds David Frost at Marshall Warburton. “So much of the work is becoming derivatives focused, especially the ability to create and sell structured products and transactions – in the emerging markets especially – that candidates with these skills are being actively sought, and well rewarded.”
This focus is seen on both sides of the dealing ‘fence’. Marshall says the company is seeing, “a small, but growing demand for prop desks to create these transactions, not to undertake vanilla tasks, but to take a more quantitative approach”.
Andrew Smith, head of treasury and capital markets, Appointments in the City, also sees demand for multi-skilled traders on the rise. “In my opinion, banks are becoming more risk averse – they are not looking for traders to take large positions and have substantial P/L swings. Arbitrage traders are certainly in vogue at the moment as institutions see them as a way of increasing revenue streams without substantially increasing their risk profiles.”
There is evidence in the accompanying table (see page 15), provided by Marshall Warburton, that salaries for sales staff are flattening, whilst that of traders, at desk level, is on the increase. The table is based upon a survey of banks, with a 60/40 split between medium and large sized institutions. The salary estimates represent the median salaries being paid, and the bonuses are subject to wide variations, depending upon the individual, desk or overall organisation’s performance. There are also variations, which may not be reflected in the table, between medium and large sized institutions.
Although the traditional role of the spot trader is seen as diminishing further, with the number of jobbing traders continuing to dwindle, Frost foresees strong demand for good execution people. “E-trading platforms have in effect taken away the vanilla FX business, as they were intended to do. This has led to a drop in the number of execution people. But as always, demand will remain for those at the top of the tree. There will be fewer execution people, but they will be better rewarded.”
This is not only an FX issue however. Money market traders, Marshall points out, are now expected to have wider product knowledge than before, and are also expected to make money off of the balance sheet.
The fact that trading salaries at desk level are rising may provide some comfort for those in the FX market that foresee problems looming. A chief dealer at a European bank sounds a note of warning over market developments, saying, “The market is so geared towards providing liquidity to the client base, as it always has been, that it is ignoring potential problems on the other side of the market. At the same time, as banks are providing more liquidity to clients than ever before, liquidity in the interbank market is plummeting. I feel we are facing a potential crisis, how are banks going to cope with the fact that their clients are dealing in huge amounts, but that they can only shift a fraction of it into the market unless they are willing to take a very long time about it?”
This is an issue that few see developing as dramatically as this dealer; however, many do acknowledge potential problems. The treasurer of another European-based operation sees the need for more liquidity providers. “Traditional spot traders are no longer really necessary in many managers’ eyes, but liquidity providers are. To me, they are one and the same thing – it’s no good providing liquidity if you cannot offset the market risk.”
Other institutions also provide evidence that if they are unlikely to add trading staff, they certainly are not going to cut any further. Several institutions report their clients trading in large, potentially market-moving amounts on the telephone (using the client-sales-trader relationship) and once the order is complete, putting the deal onto an electronic system to reap the benefits of STP. Using a blend of traditional and electronic means of trading suggests that there is a future role for both trading and sales staff.
A trader at a multinational corporation in London also points out that liquidity is squeezed even tighter if you consider that any request for quote (RFQ) in size over the multi-bank portals is likely to be aimed at the top tier banks, which in turn are relying on each other for liquidity. The problem, he argues, is that if, for instance, four major banks are asked on an RFQ basis for a price in ‘size’, one will win the trade, the other three will have no idea which way the client dealt, but will be alert to the presence of competing banks in the interbank market. This problem can be exacerbated when you consider that many of the world’s top trading banks are split between Atriax and FXall, for example. “The day could come,” the trader adds, “when banks no longer wish to win ‘big ticket’ deals unless they are offered on a confidential basis.”
There remains little doubt that the sales side of the equation will continue to drive the employment market. “Banks are crying out for good sales people, those with full product knowledge, especially in derivatives,” says Smith. “Demand for institutional sales people is outstripping that for corporate sales within this sphere.”
Marshall echoes these sentiments, adding, “Banks look for specific candidates who can increase business from the existing client base by producing innovative strategies.”
Another City-based recruitment consultant, specialising in FX trading, concurs, “The trend going forward will still be about sales, and big houses trying to win more business. Generally speaking, those banks that are the most successful in FX have a strong sales force who can sell structured products to clients.”
Both Marshall and Smith agree that a ‘portable’ client base is unimportant at the top tier level. “Banks at that level speak to all of the top clients,” says Marshall. “What the banks are looking for are candidates that use research and analysis – a quantitative approach that differentiates them from others.”
However, at the second tier level and below, it is a different story. Smith explains, “Banks outside the top tier all want sales people who can bring their client base with them. This raises volume and revenue when handled well and raises the profile of the bank in question.”
“There is an obvious upside for a bank that wants to, say, get in two or three top quality people. They can seriously upgrade income flow,” adds Marshall.
A side-effect of the economic downturn has also raised the pressure on some sales traders at ‘lower’ levels of the market. As the head of sales at a North American bank notes, “More and more banks are examining their clients in minute detail. This in turn is raising the pressure on sales staff to break into the top tier of clients, something that is very difficult to do if you are not at the top table in the banking world. The concern is that having failed to attract top level clients, and having the banks exercise a kind of ‘credit crunch’ on second tier clients, these banks just walk away from the business.”
The other change that appears to be taking place in the employment market, is that good candidates have much more power, and are very choosy about where, or if, they move. Marshall sees this as a natural development. “In recent years, there has been a much higher quality of candidate – those with broad market experience and a very high quality education – moving into the FX arena. Previously, FX was undersold as a career path. This is less the case today, although it is still not given the high profile it should be,” he says.
The City-based consultant adds, “FX has been seen as a ‘necessary evil’ within someone’s equity or fixed income portfolio, but this is likely to change. Equities have had a bad year, and whilst fixed income has had a great year, this is due to the collapse in US rates in the main, and therefore not something likely to be repeated next year. FX may well move to the forefront again.”
“The employment market is becoming more professional,” adds Marshall. “Generally, the candidates that the banks are chasing are at the top of their professions, this means the whole negotiation process is more balanced. The candidates themselves are also looking for more than just a role in a franchise organisation. This means that banks outside the top tier have a good chance of attracting top quality staff if they are willing to offer them latitude to express themselves.”
A point put forward by another consultant tends to support the theory that candidates are getting more selective. “We have noticed that a lot of top quality candidates are shying away from working for North American banks for instance, because so many of them have a volatile employment record, especially at senior desk level. These candidates are studying the organisation, talking to them in as much detail as they themselves are studied, and are expressing a preference to work for institutions that have a much more stable record in the market (from an employment perspective). There is a lack of confidence in those banks that have what is perceived to be a ‘revolving door’ policy.”
The City-Based consultant notes that, whilst people are nervous of banks with a chequered employment record, “equally banks are wary of candidates with a chequered past, for instance with eight or nine banks on their CV in a 15 year career”.
Continuing this theme, the consultant adds, “The hiring policy is important. Those banks with a strong record of stability rarely find their staff leaving. Some have to ask themselves, what is it these banks have got that we haven’t? Equally, the market has bred individuals that are looking for one or two year guaranteed deals; however, that is as much to do with frustration of management structure and strategy, it’s not all about earning more.”
Where do we go from here?
The question dominating the thoughts of many in the market is: Where do we go from here? Marshall notes that progression is not as easy as it once was. “No longer is the best dealer on the desk made the manager,” he says, “He is now likely to be rewarded financially, in the form of a bonus, than promotion.”
The City-based consultant sees dangers with this path however, noting, “Banks generally have got to identify how they keep good people; it’s not all about money. Pay traders too much too soon and there is a danger that you get a different animal next year, as the bonus does not have to be paid back if they lose money. The market is catching up a little with the use of deferred stock options that roll out in say three years’ time, and are renewed every year; however this does not solve the problem completely as other banks can still step in and offer the equivalent in their own stock as part of a package.”
Banks are seen grooming candidates for managerial roles by broadening their experience, although a ready supply is now on hand at most institutions. The influx of well-educated individuals into the markets a little over 10 years ago is now resulting in what Marshall terms, “a level of high quality, well rounded staff at junior managerial level”. “These staff are now ready to move up to a more senior role, which will be at the expense of profitable traders who may not have the best managerial skills,” he says.
For those staff earmarked for management, international experience is also seen as increasingly essential. “Banks are more proactive [on this issue],” says Frost, “To produce a good dealing room manager, they see the benefits of international experience. Language skills are also much in demand – being bi-lingual is a must for many recruiting institutions.”
Recruiters see persistent regional traits in the market. “We are seeing a lot of demand for staff from Europe,” says Marshall, “Especially those nations in Euroland that have undergone de-regulation, such as Spain and Italy, where banks have the opportunity to move into new markets. In North America, banks are less concerned because, frankly, they and the candidates still see FX as a second-class business. In Asia on the other hand, you tend to get candidates that are so well-rounded that it is sometimes difficult to know where to place them.”
A London-based recruiters note there has been demand from Asia for senior desk level staff from London, which is still seen as the ‘centre of excellence’ in the FX market.
In general terms, salary structures remain unchanged. In North America, the accompanying table can be converted into US dollars to gain an idea of similar salary levels. However, basic salaries are often below those in Europe (as illustrated) while bonuses tend to be higher in North America. Asia has a wide spread of salaries, depending on centre. The London-based recruiter suggests that Singapore is the best paying major centre in Asia, Hong Kong the lowest, but does add the rider that there are exceptions to this rule.
Across product areas, differing demands appear to be emerging. In the research arena, the London-basedrecruiter notes a shift away from economists, towards strategists, across the board. “In fixed income, the interest has shifted towards relative value strategists rather than the macro approach. In FX, the interest is more for intermediate level rather than senior. Top strategists are reluctant to move in the current economic climate, but there has been a widespread move to strengthen teams.”
He adds, “In emerging markets especially, interest for economists has collapsed. In the major markets there is also little interest, aside from demand for quality Euroland analysts, but this is likely to be a temporary phenomenon.”
Generally speaking, most recruiters agree that the FX trader now has more career paths open than ever before, including opportunities on the buy side and with technology vendors. “Corporations are using the market more and more through the electronic portals,” says Marshall. “In many cases, however, these companies remain unsophisticated in their activities, so there is a role for high quality FX professionals. The corporate world is no longer about merely hitting a button and dealing, there are greater risk management issues to deal with.”
Looking at the bottom line for most traders – remuneration – recruiters are united in seeing a steady salary scale for the next 12-18 months, with the top candidates breaking the mould should they decide to move.
Bonuses are also expected to remain steady, as institutions continue to build FX into a career path. The move into senior management by FX professionals should be welcomed according to Frost, who sees this year’s drop in bonuses (as suggested by the accompanying survey), as a result of a lack of FX experience in senior management.
Smith sees banks already gearing up for Q1 of 2002, while Marshall says his company is at its busiest for months – both are indications of a healthy short term outlook for the market.
Longer term too, there are reasons for optimism, according to Marshall. “Although banks still do not value FX highly enough, they are ignoring the fact that an ‘FX dollar’ is worth significantly more than a ‘derivative dollar’. Other markets may grab the headlines, but there is no getting away from the fact that compared to most markets, a good FX desk produces steady income, and that, at the end of the day, is something all banks would like,” he says.
The City-based consultant sees hope for people on both sales and trading desks. “Looking ahead,” he says, “FX is going to be more interesting over the next two years than it has been for the past three or four. The bond markets have naturally reflected moves in interest rates this year, but I am not convinced the FX market has. In addition, substantial yen volatility beckons, euro/dollar is going to move substantially in one direction or the other, and higher market share is aggressively sought by major players. This will lift demand for quality sales people and traders.”
2002 FX SALARY SURVEY
Trading & Sales Senior Management
Head of FX Trading
Head of FX Sales
Head of Currency Options Trading
Head of Money Markets
Head of Forwards Trading
Head of Emerging Markets FX
Head of Proprietary Trading
Chief Dealer, FX
Senior Traders & Sales Dealers
Senior Spot Dealer
Senior Forward Dealer
Senior FX Sales
Senior FX Options Trader
Senior Proprietary Trader
Senior Derivatives Structurer
Traders & Sales Dealers
Spot FX Dealer
Forward FX Dealer
Money Market Dealer
FX Options Dealer
This information was compiled by Marshall Warburton Executive Search, comparing individuals from a cross section of medium and large sized institutions.
*All figures represent estimates of current compensation packages